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Accounting Principle

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11 views3 pages

Accounting Principle

Uploaded by

Mai Tran
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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EXERCISES FOR CHAPTER 6

EX1: The following information is available for Harold Company:


Beginning inventory 600 units at $5
First purchase 900 units at $6
Second purchase 500 units at $7
Assume that Harold uses a periodic inventory system and that there are 700
units left at the end of the month.
Instructions: Compute the cost of ending inventory, cost of goods sold under
the
(a) FIFO method.
Cost of ending inventory = (700) 500*7 + 200*6
Cost of good sold = 600 *5 + 700 *6
(b) LIFO method.
Cost of ending inventory = (700) 600 *5 + 100 *6
Cost of good sold = 500 *7 + 800 *6

(c) Average – cost method.

EX2: Dixen Company sells many products. Whamo is one of its popular items.
Below is an analysis of the inventory purchases and sales of Whamo for the
month of March. Dixen Company uses the perpetual inventory system.
Purchases Sales
Units Unit Cost Units Sales
price/Unit
3/1 Beginning inventory 100 $40
3/3 Purchase 60 $50
3/4 Sales 70 $80
3/10 Purchase 200 $55
3/16 Sales 80 $90
3/19 Sales 60 $90
3/26 Sales 40 $90
3/30 Purchase 40 $60
Instructions: Calculate the value assigned to cost of goods sold in March and
to the ending inventory at March 31 using:
(a) Using the FIFO assumption.
(b) Using the weighted average method.
(c) Using the LIFO assumption.
EX3: Nolan's Hardware Store prepared the following analysis of cost of goods
sold for the previous three years:
2018 2019 2020
Beginning inventory 1/1 $40,000 $18,000 $25,000
Cost of goods purchased 50,000 55,000 70,000
Cost of goods available for 90,000 73,000 95,000
sale
Ending inventory 12/31 18,000 25,000 40,000
Cost of goods sold 72,000 48,000 55,000

Net income for the years 2018, 2019, and 2020 was &70,000; $60,000; and
$55,000 respectively. Since net income was consistently declining, Mr. Nolan
hired a new accountant to investigate the cause(s) for the declines. The
accountant determined the following:
1. Purchases of $25,000 were not recorded in 2018.
2. The 2018 December 31 inventory should have been $24,000.
3. The 2019 ending inventory included inventory costing $5,000 that was
purchased FOB destination and in transit at year end.
4. The 2020 ending inventory did not include goods costing $4,000 that
were shipped on December 29 to Sampson Plumbing Company, FOB
shipping point. The goods were still in transit at the end of the year.
Instructions
Determine the correct net income for each year. (Show all computations.)

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